PARIS --- The German government’s decision to fine Airbus for late delivery of the A400M airlifter opens a new, more confrontational era as partner nations appear no longer willing to accommodate the company’s failure to deliver on this troubled program. It may well lead to further, and larger, financial penalties which could further upset the program’s finances and discourage new customers until fully-capable aircraft become available in 2018.
While Airbus continues to miss its delivery targets, those aircraft that it does deliver fall short of contractual performance goals. This creates serious operational problems for the bigger customer nations, whose in-service fleets of C-160 Transall and C-130 Hercules transports are nearing the end of their service life just as operations in Africa and the Middle East creates the need for more airlift capacity.
Germany takes hard line
The German fine shows that Berlin has reversed its previously tolerant position, expressed at the beginning of the year when Airbus failed to submit a promised schedule for 2015 deliveries. At the time, a German official told Defense-Aerospace.com that while “penalties are provided for in the contract, and they are now on the table…..they are not the only course of action,” and “some countries may prefer other forms of compensation.”
It also shows Germany has cut Airbus no slack after A400M production aircraft were grounded when the second Turkish production aircraft crashed May 9 during a pre-delivery flight, which further disrupted the delivery schedule through not direct fault of the company.
Nonetheless, the €13 million fine reported by Reuters falls far short of the €300 million that the Financial Times said that Germany was seeking in compensation, so the financial situation could still considerably worsen for Airbus.
It is not clear whether other customer nations have levied similar penalties, or intend to, and a spokesman for Airbus Defence and Space declined to comment in a Nov. 15 e-mail, sayng “we can't comment on the discussions with our customers.”
France forced to buy C-130Js
France’s own impatience with Airbus has been sharpened by the realization that the A400M is unable to refuel helicopters in flight – and may never be able to - and that it cannot drop paratroopers from its side doors. Both of these capabilities are required by French special forces, so France is now being forced to buy four Lockheed C-130J Super Hercules, which can do both.
This is especially galling for the French government as it has always been the A400M’s staunchest supporter, and Paris does not much appreciate having to buy a competitor that it has constantly maintained is very much an inferior product.
The humiliation is that much more keenly felt, sources here say, that the United States is asking a very high price for the four Super Hercules: $650 million, or $162.5 million per aircraft. The proposed sale, submitted to Congress by the Defense Security Cooperation Agency on Nov. 10, covers two C-130J transports and two KC-130J tankers and their self-protection equipment.
This price is about double the €330 million that France has earmarked for the acquisition, and seems so excessive that the Pentagon is sending a team of five people to Paris to explain it to French officials, Defense News reported Nov. 13.
One French official noted that, by asking $355 million for the basic aircraft and an extraordinarily high $290 million for their self-protection suites, the Pentagon is publicly wielding the pricing power that the A400M's shortfalls have restored.
A400M write-offs now pass €5 billion
Airbus Group took a new, €290 million charge for the A400M in its first-half accounts, after one of €551 million in the fourth quarter of 2014. These charges bring to 5.04 billion the total amount that Airbus has written off over the lifetime of the program.
Further penalties remain quite possible, however, since Airbus was originally due to deliver 23-24 A400Ms this year. This number was informally reduced to 15 or 16 aircraft in January 2015, but now it seems even this reduced target will not be reached. “We have delivered six aircraft this year so far," the Airbus spokesman said, and a total of 16 for the program.
Germany was due to receive five A400Ms this year, for example, but will now receive only one or possibly two. France was due to receive four but will likely only have received one by year-end, with the second probably sliding into 2016. Turkey has held up delivery of its first A400M for several months over quality control and non-compliance issues, and lost its second aircraft which crashed during a pre-delivery flight in May, so deliveries continue to lag.
Flightglobal reported that the number of deliveries “should increase to between 13 and 17 by year-end, depending on the successful outcome of flight-testing and the progress of contractual discussions," which would imply 7 to 11 deliveries in the coming 5 weeks.
Back in March, when nations were expecting a revised delivery schedule from Airbus, French defense procurement chief Laurent Collet-Billon said that Airbus was not taking customer complaints seriously enough, adding that “We will have to hit them with penalties and interest charges to make them understand just how unhappy we are.”
Surprisingly, not much progress seems to have been made since March 6, when we reported that “Airbus risks A400M penalty claims by partner nations”.
2015 deliveries: 15-16 planned, 6 to date
At the end of 2014, Airbus had pledged to improve its delivery performance, promising after months of hesitations that 15 or 16 A400Ms would be delivered in 2015. As of early as mid-November, however, deliveries are still lagging behind the revised delivery, and another round of talks has begun between Airbus and OCCAR, the international arms agency running the program on behalf of the customer nations, on yet another contractual schedule for delivery of aircraft, of their upgrades and of contractual capabilities.
All A400Ms delivered to date – 16 aircraft, according to the Airbus DS spokesman -- are only capable of flying simple transport missions to and from airports.
New contract, delivery schedule under negotiation
And it now appears that, eight months after an agreement was supposed to have been reached between customer nations and Airbus, a new contract amendment and a new delivery schedule are again being negotiated.
Airbus “is in fresh discussions with the launch customers….with the goal of agreeing a renewed contract by early next year, amending the transport’s delivery schedule and also the timeline for introducing its tactical capabilities,” Flightglobal reported Nov. 3 from a media event at the A400M final assembly line in Seville, Spain.
Aviation Week reported Nov. 5 from the same event that all future A400Ms “will be delivered with tactical capabilities as and when they are ready, while a full common standard aircraft with all capabilities installed is scheduled be delivered in 2018.” It added that “This staggered process means aircraft will have to be retrofitted at least once, and in some cases twice, to bring them up to full specification.”
Germany’s decision to fine Airbus €13 million euros for late delivery of two A400Ms due this year was reported Nov 13 by Reuters, and announced in a letter from Deputy Defence Minister Ralf Brauksiepe to the Bundestag’s Budget Committee. It is a sign that these latest negotiations may not be as smooth as past ones.
Britain’s Royal Air Force, which has received seven aircraft to date, estimates that it will take three years for its A400M to “be equipped with [the] advanced capabilities that will see it progress into a highly capable air transporter.”